How Neil Woodford was convinced to buy Provident Financial shares just before they collapsed 66%

Star fund manager Neil Woodford lost another £1.7million of investors' money when he doubled down on teetering doorstep lender Provident Financial after a profit warning.

The troubled company's share price tumbled in June when it revealed that a reorganisation meant to boost efficiency at its home credit arm was veering alarmingly off track.

But Woodford, the business's second-largest stockholder, bought 103,000 shares for around £2.5million days later after he spoke 'at length to management about the issues' and was 'reassured' about the future.

Bad call: Neil Woodford lost £1.7m of investors' money when he doubled down on teetering doorstep lender Provident Financial

The stock then crashed again this week when bosses revealed the damage was far worse than initially thought. It means those extra shares are worth just £770,000, a £1.7million loss.

Overall, Woodford has lost more than £280million on the company since it said on Tuesday that glitches with a new IT system mean home credit will lose up to £120m this year.

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Analyst are now warning Provident remains overpriced and could even face a funding shortfall next year which might put its future at risk.

Woodford still insists it is a buying opportunity – although a spokesman for his business would not say last night if he planned to buy more stock.

After the latest profit warning triggered a share price collapse of nearly 70 per cent, the manager said: 'In June, it became apparent that the transition was not going as smoothly as anticipated.

'I spoke at length to management about the issues that were being experienced and was reassured that the business knew the causes of the problems and what to do to rectify them.

'I assumed that the company was guiding towards a worst-case scenario for the additional cost of executing the transition effectively.'

The company's results were much worse than Woodford was led to believe.

But he nonetheless claimed the fundamentals of the business were sound.

The problems at Provident stem from a plan to get rid of 4,500 part-time debt collectors and replace them with 2,500 full-time ones.

As part of this efficiency drive, a new IT system was introduced to manage their appointments – but it is full of flaws and staff are being sent to the wrong houses at the wrong times. Meanwhile, the City watchdog is investigating concerns over a credit card protection product which is sold by Provident.

Former boss Peter Crook has resigned in disgrace, and chairman Manjit Wolstenholme is now running the firm on a temporary basis.

Shares rallied 13.2 per cent, or 87p, to 748p yesterday, but are still around 57 per cent down on where they were before this week's warning.

Rivals to Provident are now eagerly hoping to snap up staff driven away by the chaos.

Former boss John van Kuffeler, who now runs fledgling competitor Non-Standard Finance, has poached 400 disaffected workers since the year began.